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JOINT CIRCULAR No

JOINT CIRCULAR No. 03/1999/TTLT/BXD-BVGCP OF JUNE 16, 1999 GUIDING THE METHOD OF DETERMINING AND COMPETENCE TO DECIDE CONSUMPTION PRICES OF CLEAN WATER IN URBAN AREAS, INDUSTRIAL PARKS AND RURAL POPULATION CLUSTERS

Clean water is a product essential for the daily life, production and service activities of all population strata. The supply of clean water to satisfy the entire society’s demand therefor, especially in urban areas, industrial parks and rural population clusters, has become an extremely imperative issue.

On April 28, 1997, the Ministry of Construction and the Government Pricing Committee issued Joint Circular No. 02/TTLB to guide the method of determining and the competence to decide the consumption prices of clean water in urban areas, industrial parks and rural population clusters. Due to numerous changes in the Law on Enterprise Income Tax and the Law on Value Added Tax, the investment capital sources and management organization in water plants, it is necessary to make appropriate amendments and supplements.

In furtherance of the Prime Minister’s Directive No. 40/1998/CT-TTg of December 14, 1998 on enhancing the management and development of urban water supply, the Ministry of Construction and the Government Pricing Committee hereby jointly guide the method of determining and the competence to decide the consumption prices of clean water to be uniformly applied in urban areas, industrial parks and rural population clusters, as follows:

A. THE PRINCIPLE FOR AND METHOD OF DETERMINING THE CLEAN WATER CONSUMPTION PRICES

I. THE PRINCIPLE FOR DETERMINING CLEAN WATER CONSUMPTION PRICES:

1. The determination of clean water consumption prices must demonstrate the Party’s and the State’s guidelines, viewpoints and policies in the cohesive relationship between the economic development and the social life;

2. The clean water consumption prices must be calculated to correctly and fully cover costs arising in the course of production, distribution and consumption, with the customers’ payment capability and the clean water producing and trading enterprises’ loan repayment capability being taken into account, so that such enterprises can maintain and develop their operation.

3. The clean water consumption prices shall be set specifically and rationally for each kind of clean water consumers: clean water used for daily life by households and administrative and non-business agencies; for production, business and/or services (households using clean water for their production, business and/or service activities). The clean water consumption prices shall be set according to its use purposes, irrespective of whether the consumers are domestic enterprises, foreign-invested enterprises, Vietnamese or foreigners.

II. THE METHOD OF DETERMINING CLEAN WATER PRODUCTION COST AND CONSUMPTION PRICE

I. Clean water production cost:

The clean water production cost includes direct materials cost, direct labor cost and general production cost.

a/ Direct materials cost: is the cost of raw materials, fuel and materials used to directly turn out the product, such as: cost of crude water (for enterprises that have to buy crude water); auxiliary materials for water treatment; fuels and power;...

The materials cost shall be determined on the following basis:

+ The used materials volume, that must not exceed the limits set by the competent authority (excluding materials lost during the course of procurement and preservation).

+ The materials prices: are those publicized by the State and reasonable market prices at the time of calculation.

b/ Direct labor cost: includes amounts paid to laborers directly engaged in water production, including: wages and salaries, remuneration and allowances of wage nature, shift meal grant, social insurance and health insurance premium, and trade union fund.

The wage expense shall be determined on the basis of wage unit prices approved by the competent State agency, and the quantity and quality of finished products. For clean water producing and trading enterprises having no wage unit prices, the labor norms, current wage grades and levels and the job’s characteristics shall serve as bases for determination of reasonable wage expense, after they are evaluated by the competent authority.

The mid-shift meal grant shall be paid to the laborers engaged in business operations of the enterprises according to the current regulations.

The expenses for social insurance, health insurance and trade union fund shall be calculated on the basis of the enterprises’ wage funds according to the State’s current regulations.

c/ General production cost: is general expenses arising at workshops and business sections of enterprises such as: wages, allowances, shift meal grant paid to workshop laborers, expenses for materials, tools and instruments supplied to workshops; social insurance, health insurance and trade union fund for workshop officials and employees; fixed asset depreciation; expenses for services purchased from outside; and expenses in cash other than those mentioned above.

Depreciation of fixed assets used at workshops shall be determined on the following basis:

- For fixed assets created from the State budget’s capital source:

The management, use and depreciation of such fixed assets shall comply with the Ministry of Finance’s Decision No.1062-TC/QD/CSTC of November 14, 1996 and other relevant legal documents.

- For fixed assets created from other capital sources:

The management and use of such fixed assets shall comply with the above-said regulations; but the deduction of their depreciation shall be made according to the terms of water supply projects’ investment loans from foreign countries, international financial institutions and other sources.

2. The overall production cost of clean water:

The overall production cost of clean water includes the clean water production cost, sale expense and enterprise management expense.

a/ The clean water production cost (already mentioned in Section II.1)

b/ Sale expense: includes all expenses related to the sale of product or service such as: wages, allowances of wage nature, mid-shift meal grant, social insurance and health insurance premium and trade union fund for the salesmen; expenses for advertisement and services purchased from outside,...

Sale expense shall be determined according to the State’s current regulations.

c/ Enterprise management expense: includes expenses for the enterprise-managing and-running apparatus and those for the entire enterprise, such as: depreciation of fixed assets used in service of the enterprise-managing and-running apparatus (according to the principle mentioned in section of the general production cost); expenses for wages, remuneration, allowances and shift meal grant paid to the directorate and managerial personnel in various sections and divisions, social insurance, health insurance and trade union fund for the enterprise managing apparatus; expenses for materials and stationery, taxes and fees, expenses for services purchased from outside for the enterprise office and other expenses covered by common fund of the entire enterprise, such as: reserves for possible decrease of prices of goods in stock and bad debts; audit, guest reception and transaction expenses; deducted remittances to the superior authorities; expenses for scientific research and technological renewal; rewards for inventions and innovations, expenses for environmental protection, education, training and laborers’ healthcare, and allowance(s) for female laborers according to the current regimes.

The overall production cost of clean water product includes the following items:

Ordinal Expense contents Symbols

number

1 Direct materials expense Cvt

2 Direct labor cost CNC

3 General production cost Csxc

4 Aggregate production cost (1+2+3) CP

5 Goods sale expense: CB

6 Enterprise management expense CQ

Overall production cost (4+5+6) GTtb

3. Commercial water output:

The commercial water output shall be determined according to the following formula:

SLtp = SLsx - SLhh

SLtp: commercial water output;

SLsx: water production output is the water volume calculated according to the annual exploitation plan of each water supply plant set by the People’s Committee of the province or centrally-run city (herein referred to as the provincial People’s Committee).

SLhh: water wastage is the lost water volume for which the charge cannot be collected due to the poor technical conditions and management level of each water supply plant during the process of its clean water production and distribution. The water wastage shall be determined in percentage on the water production output. The specific water wastage percentage of each plant shall be decided by the provincial People’s Committee. The wastage percentage set till the year 2000 must not exceed 30% for the new water supply system and 40% for the old water supply system (including water for washing the plants’ technical systems as prescribed). Such wastage percentage shall be readjusted for each period of time depending on the situation of investment, upgrading of technical systems and the raising of management capability of the plants.

4. Clean water consumption prices (without value added tax).

a/ Average consumption price

The average consumption price shall be determined by the following formula:

GTtb

Gttbq = ——— + TNct + Ftn

SLtp

Gttbq: Average consumption price;

GTtb: Overall production cost of clean water product;

SLtp: Commercial water output;

TNct: Pre-calculated taxable income (i.e. former norm profit);

Ftn: Water drainage expense

- The pre-calculated taxable income shall be set for each enterprise by the provincial People’s Committee on the basis of the current regulations on financial management regime.

- Water drainage expense is the one calculated in percentage on the overall production cost for the sewer dredging, regular repair and maintenance of water drainage system. Basing him/herself on the actual conditions of his/her locality, the president of the provincial People’s Committee shall prescribe the specific level of water drainage expense, which must not be lower than 10% of the overall production cost of clean water product. The management and use of collected water drainage charge shall be prescribed on the basis of the State Budget Law by the provincial People’s Committee in service of the sewer dredging, regular repair and maintenance of the water drainage system. Such collection amount shall not be included in the income of the clean water producing and trading enterprises.

b/ Clean water consumption price applicable to each subject:

The appropriate price calculation coefficient shall be determined on the basis of the average clean water consumption price and the clean water volume consumed by each subject in the locality.

The clean water consumption price shall be calculated by the progressive method with higher and higher prices for larger and larger consumed volume of water, in order to encourage households to use water economically and avoid wastefulness.

The specific price for each water consumer shall be determined on the basis of the average water volume used by each kind of consumers, but must not be lower than the average clean water consumption price (mentioned in Section 4.a above).

For households consuming clean water without having had watermeters installed, the presumptive consumption price of 20m3/month/household shall be provisionally applied.

The price calculation coefficient applicable to each clean water consumer must not exceed the maximum price calculation coefficients specified in the following table:

Water consumers or use purposes

Clean water volume consumed by subjects in the month

Maximum price calculation coefficient

Level

Rate %

For households’

Administrative and non-business agencies

Material production activities

Service business

First 16 M3

From over 16 M3 to 25 M3

From over 25 M3 to 25 M3

Over 35 M3

According to actually consumed volume

According to actually consumed volume

According to actually consumed volume

SH1

SH2

SH3

SH4

HC

SX

DV

0.8

1.0

1.2

1.5

1.2

2

3.5

Average total commercial water output

100

1

In special cases where enterprises produce their clean water chiefly for daily life of households, the applicable price calculation coefficient shall be may be set higher than the maximum price calculation coefficient applicable to the first 16 m3, in order to ensure that the average clean water consumption price coefficient is 1.

In cases where the clean water consumption price, after being accurately and adequately calculated according to the above guidance, is higher the current sale price, the provincial People’s Committee shall have to readjust it step by step, so as to ensure that such clean water consumption price shall soon be accurately and adequately calculated. For the immediate future, the clean water consumption price must not be lower than 75% of that already accurately and adequately calculated.

B. THE COMPETENCE TO DECIDE AND CONTROL CLEAN WATER CONSUMPTION PRICES

1. In each period, basing itself on the actual situation of the production and consumption of clean water in urban areas, industrial parks and rural population clusters, the Ministry of Construction shall assume the prime responsibility and coordinate with the Government Pricing Committee in studying, supplementing and amending the method of determining the clean water consumption price to make it more appropriate.

2. The provincial People’s Committees shall decide the clean water consumption prices and payment prices (to be paid by the water consumers and determined equal to the clean water consumption prices plus value added tax) in their respective localities, and direct the functional bodies in inspecting the observance of the clean water consumption prices in urban areas, industrial parks and rural population clusters.

3. The clean water producing and trading companies shall submit to the provincial People’s Committees plans of clean water consumption prices. The provincial/municipal Finance and Pricing Services shall coordinate with the provincial/municipal Construction Services or provincial/municipal Communication and Public Work Services in evaluating the plans of clean water consumption prices, then submitting them to the provincial People’s Committees. Annually, the provincial functional bodies shall have to revise the factors constituting the clean water consumption price, then propose them to the provincial People’s Committees for appropriate amendments and supplements thereto.

4. Clean water producing and trading enterprises shall have to regularly inspect the water consumption and water charge payment by consuming households, and take timely measures to tackle water wastage and under-collection of water charges.

C. ORGANIZATION OF IMPLEMENTATION

1. The presidents of the People’s Committees of the provinces and centrally-run cities shall direct the clean water producing and trading companies in devising plans on clean water consumption prices, organize the evaluation thereof and decide the clean water consumption prices and payment prices in their respective localities; and at the same time send their decisions to the Ministry of Construction and the Government Pricing Committee for monitoring purpose.

2. The Ministry of Construction and the Government Pricing Committee shall organize the periodical or irregular inspections of the formulation, promulgation and management of clean water consumption and payment prices by all provinces and centrally-run cities as well as clean water producing and trading enterprises according to the provisions of this Circular.

This Circular takes effect 15 days after its signing and replaces Joint-Circular No.02/TTLB of April 28, 1997.

Any problems arising in the course of implementation of this Circular shall be reported by the localities to the Ministry of Construction and the Government Pricing Committee for study and appropriate amendments and supplements.

For the Minister of Construction

Vice Minister
NGUYEN TAN VAN

For the Head of the Government

Pricing Committee

Deputy Head
LE VAN TAN